NY top court backs development grants to business

New York’s top court on Monday rejected a challenge to economic development grants brought by a taxpayer group affiliated with the Tea Party movement that wanted companies to return billions of dollars to the state.

Such corporations are created by the state, but it is “well settled” that they exist independently with greater flexibility and can use state money for designated public purposes, Judge Theodore Jones Jr. wrote for the five judges who rejected the challenge. In this case, that means providing state grants and loans to private companies like IBM and Global Foundries for economic development.

Jones noted that the Legislature created the New York State Urban Development Corp., doing business as ESDC, in 1968 to promote a vigorous economy, prevent stagnation and create new job opportunities to protect against the hazards of unemployment. He said the court has previously recognized “public funding programs essential to addressing the problems of modern life” unless they are “patently illegal.

The majority also upheld grants to agricultural nonprofit associations to promote wine and fruit, concluding that is a predominantly public purpose.

In one dissent, Judges Eugene Pigott Jr. said the state constitution expressly forbids giving or loaning state money to any private corporation or association, even when a public benefit corporation is used as an intermediary. The provision has specific exceptions for educational and mental health funds.

“Unconstitutional acts do not become constitutional by virtue of repetition, custom or passage of time,” Pigott wrote. He noted that New York voters in 1967 rejected a proposed constitutional amendment that would have allowed the state to distribute funds to private businesses for economic development in the same way ESDC is doing it now.

In a second dissent, Judge Robert Smith wrote that the Legislature’s “devotion to this self-destructive practice is no small matter,” including $140 million to support a joint venture in wafer packaging with IBM, $300 million to help a consortium of semiconductor manufacturers expand research and development, and $650 million to subsidize Global Foundries’ semiconductor manufacturing. Based on projections of new and retained jobs, the state costs range from $60,000 to $400,000 per job, he wrote.

“I have defended before, and will no doubt defend again, the right of elected legislators to commit folly if they choose,” Smith wrote. “But when our Legislature commits the precise folly that a provision of our Constitution was written to prevent, and this court responds by judicially repealing the constitutional provision, I think I am entitled to be annoyed.”

Attorney James Ostrowski, who represented the group of 50 taxpayers, said he knew this was an uphill fight but thought court arguments showed the state “was utterly unable to defend its position in rational terms,” and he thought his group had finally won a victory for taxpayers.

“Perhaps time will reveal a larger purpose to this bitter defeat,” he said.